A Tale of Beauties and Beasts: Testing the Optimal Disclosure Hypothesis

Hakan Jankensgard ()
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Hakan Jankensgard: Lund University, Sweden

Multinational Finance Journal, 2014, vol. 18, issue 1-2, 139-167

Abstract: According to the cost-of-capital hypothesis, increased voluntary disclosure should reduce information asymmetries, lower the cost of capital, and increase firm value. The optimal-disclosure hypothesis, however, predicts that costs related to voluntary disclosure lead to the existence of an interior optimum of disclosure that maximizes firm value. These hypotheses are empirically tested using a previously unexplored database that covers disclosure rankings for listed Swedish firms between 2007 and 2012 (rendering around 1000 firm-years). The evidence is consistent with the optimal-disclosure hypothesis. I find a robust quadratic relationship between Tobin’s Q and the level of disclosure in annual reports. I find no significant relationship, however, between Tobin’s Q and disclosure in quarterly reports or web-based reporting.

Keywords: voluntary disclosure; cost of capital; Tobin?s Q; optimal disclosure (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:mfj:journl:v:18:y:2014:i:1-2:p:139-167

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